Warehousing

FUNCTIONS OF WAREHOUSING

1. A balance between supply and demand

Goods that are seasonally produced are stored in large quantities in the warehouse
so that the supplies can be spread out throughout the year to meet the regular
demand for the goods, e.g. wheat and other agricultural products. Meanwhile, goods
which are seasonal in demand can be stored in the warehouse during the off-peak
season and are released only whenever they are needed, e.g. festive cards,
Christmas decorations, winter clothing.

2. Storage of goods at various stages of production

Warehousing is required at every stage of production. Raw materials are stored in

the warehouse before production starts. Intermediate products are stored until they
are needed for further production (or they may be sold to other producers as
components of final products) and the finished products are sent to the warehouse
to await distribution to the final consumers.

3. A place for product assembly, product aggregation and bulk breaking

Warehouses are located at convenient places where the products from different
factories are brought together for economical assembly, aggregation and bulk
breaking. An assortment of goods in smaller lots will eventually be sent to their
final destinations.

4. Specialized services

Activities like weighing, sorting, grading, blending, bottling, packing and

branding can be carried out in the warehouse. It is equipped with specialized
apparatus and facilities to perform the above services.

5. A place for display of goods

Goods can be viewed and examined at the warehouse by potential buyers before
placing purchase orders, or even by bankers, before giving out loans to the traders
who use these goods as security. A warehouse can even be turned into a large retail
outlet where small retailers and consumers can shop for goods on a cash-and-carry
basis.

IMPORTANCE OF WAREHOUSING

1. Stability of prices of goods

Prices of goods in the market are stabilized because supply is regulated to meet
demand. This is possible because goods stored in the warehouse can be released
whenever there is a shortage of goods to meet the excess demand, and in times of
glut, the excess supply can be stored in the warehouse.

2. Aids in production

With the distribution and warehousing functions taken over by specialists, the
producer can concentrate on the production of goods without having to worry whether
his goods would be sold or not. He can also engage in large-scale production of
goods to enjoy economies of scale. A good example of how warehousing aids
production is the car assembly industry. During periods of low demand for cars,
warehousing allows the manufacturer of car components to continue with production
to build up stocks that are required to meet the higher level of production during
periods of rising demand.

3. An opportunity for saving on transportation costs

Saving on transportation costs can be made as there is bulk distribution of goods

from the factories to the warehouse which in turn distribute them in smaller
quantities to the various customers. The warehouse is conveniently located near the
markets so that the goods can be delivered promptly and at low transport cost.

4. Cost savings passed on to the consumers

Some wholesalers have turned warehouses into retail outlets where their customers
can purchase goods directly from them. The savings in costs by the wholesalers
(e.g. lower overheads, no transport costs, bulk purchases and cash sales) are
passed onto the consumers in the form of lower-priced goods, e.g. cash-and-carry
warehouses and hypermarkets.

5. Facilitation of foreign trade

Exporters have their goods ready in the warehouse near the port to await the
arrival of ships to take them abroad. This is necessary because of the intermittent
arrival of ships. Meanwhile, large shipments of goods from abroad may await
collection in the warehouse by importers. For the above reasons, warehouses are
usually located near the harbor, airport or railway terminals. Where goods are
processed immediately upon arrival, warehousing facilities ensure a continuous flow
through the conveyors. Dutiable imported goods that are to be re-exported must be
stored in bonded warehouses. No duty is required to be paid so long as the goods
are stored here. Bonded warehouses are important to the importers who need to pay
duty on their imports only when they are removed from the warehouse. In the
meantime, the importers can process and pack their goods while they are in the
bonded warehouse

TYPES OF WAREHOUSE

1. BONDED WAREHOUSE

1. Bonded warehouses store dutiable goods which cannot be removed until duty on
them has been paid. Dutiable imports that are meant for re-export may also be kept
here until they are shipped overseas. However, if customs duty has already been
paid on these imports, a drawback or refund can be obtained when the goods are re-
exported.
2. These warehouses are under the control of the Custom and Excise Authorities. The
owner of such warehouses has given a bond to the Custom and Excise Authorities not
to remove the goods from the warehouse without payment of duty. Usually, a customs
officer is present to ensure this is adhered to. Those that are owned by the
government are called customs warehouses while those that are privately owned are
called licensed warehouses.

Functions of bonded warehouse

1. They provide a space for imported goods to be stored until the duty is paid.
2. They enable the Customs and Excise Authorities to check on the entry of goods
into the country and to collect the customs duties payable.
3. They facilitate commerce because businessmen can carry on trade easily.

Importance of bonded warehouse

To the trader
1. Whilst goods are still in the bonded warehouse, the trader (importer) has access
to these goods to perform the necessary operations like grading, packing and
labeling, to prepare them for sale as in the case of other warehouses.
2. The trader need not remove all his goods at once until it is convenient for him
to do so. He can make delivery of small quantities of the goods as he sells them by
paying the duty and warehouse rent to date. This enables him to make use of his
working capital for other purposes.
3. The trader can sell the goods while they are still in bond, leaving the payment
of duty to the buyer or, alternatively, get a loan on the security of the stored
goods.
4. The entrepot trader who imports with the aim of re-exporting the goods can store
his goods in the bonded warehouse while waiting for transshipment of his goods to
other countries.

To the manufacturer
1. (a) The manufacturer is assured of regular orders from overseas buyers who are
freed from the financial strain of paying at once for the import duties on goods,
since the latter can make use of the bonded warehouse.
(b) In this way, the manufacturer's turnover will increase and he can reap the
benefits of large-scale production.
2. (a) The manufacturer who makes use of imported raw materials can perform some of
the processing functions in the warehouse while the goods are still in bond.
(b) He only withdraws and pays duty for those goods he requires.
(c) As his financial resources need not be used to pay all the import duties at
once, he is able to put them to alternative uses to expand his business.

To the government
1. It enables collection and prevents evasion of customs duties.
2. It provides information on the goods imported and exported.
3. It gives the government some control over the goods imported and exported.

2. COLD STORAGE

1. It is a special warehouse with refrigeration plants for storing perishables like

meat, fish, fruit, vegetables, etc.
2. It is usually set up at terminal points like harbors, railway stations,
airports.
3. It aids foreign trade as it provides cold storage facilities to exporters and
importers of perishable goods. Without these facilities, trade in such goods would
be hindered.

3. CASH-AND-CARRY WAREHOUSE

1. It is a self-service warehouse operated by manufacturers or wholesalers, where

small retailers or even consumers can buy goods in bulk at low prices.
2. The small retailers or consumers pay cash for goods purchased and pick up these
goods their own vans or cars.
3. Goods are sold at low prices in these warehouses because of the following
reasons:
(a) bulk purchases
(b) no credit facilities available
(c) no delivery facilities provided
(d) savings in handling, bulk-breaking, assembly and other distributive and ware-
housing costs
4. Hypermarkets like Carrefour and Makro are examples of cash-and-carry warehouses.

4. RETAILERS’ REGIONAL DISTRIBUTION CENTRES

These are large warehouses usually at large road junctions which supply many
branches of a large-scale retailer e.g. supermarket. This type of regional
distribution centers enables the stores to save on storage space at their premises.
These centers may make deliveries every day using own transport fleet.

5. MANUFACTURER'S WAREHOUSE

1. The manufacturer produces goods in anticipation of demand and as soon as the

goods roll off the production line, the finished goods are sent to the warehouse to
be stored until they are required.
2. The manufacturer's warehouses store only the type of goods produced by the
manufacturer.
3. Some manufacturers may have their own warehouses or depots to store raw
materials and finished products while other manufacturers may rent warehouses. Some
may depend on wholesalers to supply the warehousing facilities.

6. RETAIL WAREHOUSE OR DEPOT

1. Some large-scale retailers, like supermarkets and departmental stores, make

direct bulk purchases from manufacturers and may have their own warehouses or
depots to store their goods.
2. Goods can be packed and branded in these warehouses which act as distributing
centers for all the branches of the department store or supermarket. In this way,
goods sold in all the branches can be standardized.
3. Where goods need to be kept fresh, e.g. fruit, vegetables, meat and other
perishable goods, cold storage facilities are available in these warehouses. Where
such facilities are absent, the large-scale retailer can hire facilities from a
cold storage.

7. WHOLESALE WAREHOUSE

1. The specialist wholesaler assumes the responsibility and undertakes the risk and
work of warehousing and distribution of goods to their destinations.
2. The wholesale warehouses store a variety of goods bought from many producers.
3. While the goods are stored in the warehouse, bulk breaking, sorting, weighing,
grading, packing and branding activities can be carried out to prepare the goods
for distribution.
4. Highly specialized warehousing equipment are used to handle the various
warehousing functions.